Lord Black is a key figure in the campaign to oppose statutory regulation of the press.

The newspaper industry could have the toughest system of press self-regulation in the free world established within three months of approval, Lord Black, chairman of the Press Standards Board of Finance, has said.

A state-regulated system could take up to three years to establish, and possibly longer because of the threat of a legal challenge to some form of statutory based system, he said.

Black is also executive director of the Telegraph Media Group and central to the campaign mounted by many newspapers to head off regulation before publication of the Leveson inquiry report.

It is the first time that the newspaper industry has suggested that it could put a new system of press regulation in place so quickly, a spokesman for the Press Complaints Commission (PCC) said on Friday. In a sign of some newspapers' determination to oppose any form of regulation, even as a backstop, Lord Black told peers on Thursday that there was a "binary choice. There is no easy middle way".

Senior Conservatives believe Leveson could propose much stronger, independent regulation answerable in some form to Ofcom, the current broadcasting regulator.

With the support of much of the newspaper industry, the PCC chair, Lord Hunt, has proposed a new system of regulation legally underpinned through enforceable commercial contracts.

"Each publisher would be required to sign a contract with the regulator which will be enforceable through the civil law.

"The contract would bind publications into the system and equip the new regulator with powers of enforcement, effectively compelling co-operation with the regulator by enabling it to sue for any contractual breaches," he said.

Black spoke of fines of up to £1m. His intervention is part of a growing propaganda war between newspapers, broadly allied with key Conservative figures – although not at present the prime minister – on the one hand, and Labour and the Liberal Democrats on the other. Both sides have spawned campaign organisations – Hacked Off, which makes the case for statutory underpinning, and the Free Speech Network, which is opposed.

In a sign of the tensions within the coalition over the issue, Lord Razzall speaking for the Liberal Democrats strongly backed statutory underpinning. He said: "There is a very clear distinction between a statute that allows political interference in what newspapers want to publish and an entirely independent body established in law that holds powerful press interests to account for implementing their own codes of conduct."

He said it was perfectly possible "to establish an independent backstop regulator with powers carefully prescribed in law which does not interfere with content but simply ensures the self-regulated keep their own promises".

He added that no politician could be allowed on any backstop body on media matters. It is understood his position matches that of Nick Clegg.

Viscount Younger of Leckie speaking for the government said he noted Lord Black's remarks about the slippery slope of state intervention. But he added: "I think it is helpful to be clear that regulating process may not be the same as regulating content if it came to a form of statutory underpinning."

A second Liberal Democrat peer, Lord Stoneham, also insisted that all newspaper companies and bloggers would have to sign up to a new editors' code. "We cannot have companies simply dropping out … when they dislike a particular system'" he said.

He suggested a range of incentives or penalties to encourage newspapers to join the system of regulation, including better protection in the courts for defamation and public interest cases, cheaper insurance and even tax incentives.

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